U.S. economy poised to lead global recovery

The U.S. is leading most of its major trading partners in burrowing out of the mountain of private sector debt that nearly destroyed the global economy and is still retarding the economic recovery, a new report says.

By The Fiscal Times Mar 20, 2012 11:15AM
By The Fiscal TimesMerrill Goozner

The U.S. is leading most of its major trading partners in burrowing out of the mountain of private sector debt that nearly destroyed the global economy and is still retarding the economic recovery, a new report says.

However, while the private sector deleveraging is well underway, the renewal of robust global growth will depend on a credible long-term plan for reducing the government’s share of total national debt that continues to mount, the report said.

Those conclusions echo recommendations repeatedly offered by Federal Reserve Board chairman Benjamin Bernanke before various Congressional oversight committees and during his biannual reports on the state of the economy. Former Fed chief Paul Volcker last week added his voice to the chorus saying the most pressing issue facing U.S. lawmakers is the need to enact a long-term plan for reducing fiscal imbalances that avoids an immediate sharp contraction in government spending.

Under current law, at the end of this year all the Bush-era tax cuts will expire and the government will slash more than $1 trillion from domestic and military spending. The Congressional Budget Office in January projected those tax increases and budget cuts would slow economic growth to slightly above 1 percent next year – a near stall speed.

The economy grew at about a 3 percent rate in the fourth quarter with the government running about a $1-trillion-a-year deficit. Republicans blame high spending for the deficits, while Democrats say the shortfall is largely driven by recession-induced counter-cyclical spending like unemployment insurance and food stamps and lower tax collections due to the payroll tax cut and high unemployment.
Either way, the new report from the McKinsey Global Institute showed that the mounting public debt has been more than made up for by declines in private sector debt, thus leading to about a 16-percentage point decline in total U.S. debt.

“We have a recovery worthy of the name . . . founded on the balance sheets of the private and public sectors,” Paul McCuilley, chairman of the Global Society of Fellows at the Global Interdependence Center, told an Atlantic Magazine forum on the economy this week. “My concern now is ‘Keynesian interruptus’.” 

Total debt – comprised of loans to households, private businesses and banks, and government – is still rising in the world’s ten largest economies, the new analysis showed. But three of those countries, led by the U.S., are seeing their total debts as a share of gross domestic product finally starting to decline. The U.S. has seen three straight years of deleveraging in the wake of the 2008 worldwide financial crisis.

All of the declines in debt were in the private sector.

That’s a sharp change from 2000 to 2008, when total private and public debt in the U.S., when measured as a share of GDP, soared by 75 percentage points to about 300 percent. But it has since fallen by 16 percentage points, more than any other country. And it is still on the way down, entirely due to deleveraging in the household and business sectors.

Since the end of 2008, debt in the financial sector, which benefited from the massive government bailout enacted near the end of the Bush administration, fell by $1.9 trillion and now stands at 40 percent of GDP. Household debt, meanwhile, fell by $584 billion as millions of Americans hiked savings, reduced spending or saw their mortgage debts erased through foreclosure. Corporate borrowing also declined as a profit-fueled recovery enabled firms to pay down debt, the report said.

The report outlined six “markers of progress” that indicate an economy is on the mend from a debt-fueled financial crisis. They include a stabilized financial sector that has resumed lending; implementation of structural financial sector reforms; a government that has enacted a credible medium- and long-term debt reduction plan; growth in exports; and a private economy where private investment has resumed and the housing market has stabilized with renewed construction. The U.S. has achieved all but one of those six markers.

“Despite concerns over the strength of its recovery and the protracted debate over how to reduce public debt, the United States has reached more of these milestones than other nations and is closest to moving into the second, growth phase of deleveraging,” the report said. “Still, no country has all the conditions in place to revive growth.”

The U.S. now faces the most difficult phase of the deleveraging process: how to transition from reducing private sector debt to deleveraging in the public sector, where increased debt to this point has succeeded in keeping the economy from falling into a double-dip recession. After four years of heightened deficit spending, public debt in the U.S. stands at 80 percent of GDP, which is the highest level since the end of World War II.

“The next phase of deleveraging, in which the government begins reducing debt, will require difficult political choices that policy makers have thus far been unable to make,” the report noted.

Related Links:
Real Recovery: America’s Debt is on the Decline
Obama Loses Credibility over Debt Deal
Ryan’s New Budget Already Roiling the Waters
How Obama Failed to Clinch the Debt Deal

2Comments
Mar 21, 2012 10:28AM
avatar

The block everything do nothing Republicans can spin all they want about the deficit ... but the deficit belongs to them/Bush and the continued idiocy of the Bush tax cuts for the wealthy that are suppose to create jobs! They started the massive job losses, the bank failures, the auto industry in bankruptcy all with a needless unpaid for war. I'll take the present economy any day to those idiots. I invest in our future done well  as have other smart investors. We've got an effective pragmatic leader in Obama who is cleaning up the mess with no help from them so celebrate our success in avoiding a massive depression caused by Republican leadership and the needless war! The deficit is coming down and will come down further!

How things are better in the last 31/2 years: I know the list of successes for this President will never be long enough for the Republicans..... even when the Dow hit 14,000 and their 401Ks have spilled over with money!......it will still be about banning contraception and going to war with them.

Negotiated a nuclear moratorium with North Korea!

24 months of job growth, rather than the 4,000, 000 jobs lost in the last 3 months of Bush

Bin Laden dead, Bush said he didn't care where he was..he didn't think about him much

Kaddaffi dead

Auto industry back and growing

Health care reform.. with preventive care which saves you money

401 Ks back

Credit card protection reform

Banking protection reform

Equal pay for women in the work force

TAX CUTS PROVIDED TO YOU unless you make over $250,000

A positive GDP

Ending of a useless war In Iraq

Stock Market back

Student loan reform

Pell Grant reform

Lowest interest rates in 50 years!!!

Killed 11 times as many terrorists as GW - That is a bonus

Started the withdrawal from Afghanistan

Removal of DADT

Managed a Natural disaster in the Gulf better than Bush handled a hurricane response.

Oil production coming from the US is at an all time high..rising oil and gas production, and a greater mix of energy sources and decreased consumption.

Stopped a pipeline that was opposed by the state it was going to run through until they can reroute it away from the aquifer.

Just a few of his successes!

Did I help you out and answer your question why people will invest… Obama 2012

Mar 20, 2012 5:36PM
avatar
Goozner, eh?
What an apt name!!!.
It is likely that the leading countries in the next couple of years will be small Pacific Island countries.
No rational person is going to invest any significant amounts of money, as long as the inept lying quasi socialistic megalomanaiac in the white house, is still there.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

VIDEO ON MSN MONEY

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min
Sponsored by:

MARKET UPDATE

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] The stock market capped the trading week with losses across the major averages. The S&P 500 fell 0.5% to surrender its weekly gain, while the Dow Jones Industrial Average (-0.7%) and Russell 2000 (-0.9%) underperformed. The two indices posted respective losses of 0.8% and 0.6% for the week.

Equity indices were pressured from the get-go after several heavyweights disappointed the market with their earnings and/or guidance, which led to some broader profit-taking. After ... More


Currencies

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.